Telecom stocks continued to surge for the second straight session on Wednesday ahead of the cabinet meeting as investors anticipated an announcement on a relief package for telecom sector.
Bharti Airtel (BAL) surged to its 52-week high of Rs 684 in the morning session, rising 2 percent from its previous close. At the time of writing, it was changing hands at Rs 676.
Vodafone Idea (VIL) surged over 7.5 percent to trade at Rs 8.90. At the time of writing, VIL shares were changing hands at Rs 8.52.
The shares of BAL have surged 5 percent in the last two sessions, whereas VIL stock has rallied over 40 percent in the last five sessions.
According to sources, while the cabinet may discuss a relief package, it will not be designed or customised for individual companies. It will be focused on granting aid to the health of the entire sector.
Although it is not official, some measures may be focused on granting reliefs in terms of payment of spectrum dues. Relief could be in terms of a possible moratorium for these spectrum dues or maybe an extension of payment of dues, the sources said.
The government is also considering the rationalisation of levies that were slapped on the telcos, like license fees. These reliefs have been in the works for a long time and telecom stocks surged on the possibility of the government delivering them today.
"Telecom stocks are rallying for the last two days ahead of the cabinet meeting as there is an expectation of announcement of a relief package for the sector. If there is an announcement related to that then it will be a positive trigger for the entire telecom sector as well for some of the banking stocks like IDFC First Bank, IndusInd Bank, and SBI," Santosh Meena, Head of Research at Swastika Investmart, said.
However, Meena advised investors to stay with the top two players -- Reliance Industries and Bharti Airtel -- due to VIL's vulnerability.
Vodafone Idea has rallied over 40 percent this week in anticipation of relief measures, he said, so "there is a risk of profit booking after the announcement." But if no favourable announcement comes, the stock can see a sharp sell-off, he said.
"Vodafone Idea may witness big swings due to its high beta nature but the situation is still vulnerable for this counter as there is a good chance that this sector is heading towards duopoly therefore investors are advised to remain with the top two players," he said.
He is bullish on BAL and RIL as both the stocks have seen a multi-month breakout, therefore, "the bullish momentum is likely to continue in the coming days", he said.
Meena is also bullish on the sector overall as the average revenue per user (ARPU) has bottomed out. "The ARPU has bottomed out and is likely to continue its upside momentum, therefore, the outlook for this sector is bullish where Reliance and Bharti Airtel both are a good bet to play the growth of this sector," he added.
Nischal Maheshwari of Centrum Broking is also bullish on BAL and RIL, but he thinks the sector can become a duopoly despite the relief measures. "Somewhere we are headed towards a duopoly. I am cognizant of the fact that the government is looking to announce some relief package to the sector. It is going to be a long haul for Vodafone Idea. That is why I believe that it is going to be a sort of a duopoly in some time to come," he said.
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